The euro zone economy remained in reasonably good shape in the second quarter of 2022 (Q2 2022), before economic sanctions and the effects of Russia's invasion of Ukraine had made themselves fully known, the Bank of Estonia reports.
The future outlook for foreign demand has turned more pessimistic than it was in the first half of the year, the central bank says.
While Estonia's foreign trade as measured in euros increased in Q2 2022, this growth was affected by the persistently high inflation caused by rising prices for energy, fuels and commodities.
Exports of goods and services increased by 29 percent in that time; imports by 20 percent.
High inflation, the war in Ukraine and the gradual application of sanctions on Russia have caused some uncertainty in goods markets, the central bank reports.
Goods exports increased by 27 percent in Q2 2022 despite all this, however, though this figure was partly affected by high rates of inflation.
The sectors experiencing the largest exports in Q2 2022 were mineral products, timber and wood and wood products, while exports of machinery and equipment, and metals and metal products all fell a little, the Bank of Estonia says.
Imports of goods were around one third higher in Q2 2022 than in the corresponding quarter earlier.
Trade with Russia also continued, despite sanctions.
Imports of mineral fuels stood at around 60 percent of the goods imported from Russia, and imports of wood products were one fifth.
The impact of sanctions on trade with Russia will start to become apparent in the second half of the year, the Bank of Estonia says.
Those sanctions in place will affect international trade in services as well, especially through the restrictions on land, sea and air transport, but this did not yet impact the overall picture of trade in services in Q2 2022.
Balance of payments data show that exports of services at current prices were up 32 percent in Q2 2022.
The biggest contribution to this growth came from travel services, which recovered strongly from the pandemic.
Telecommunications and computer services and other business services also continued to make a major contribution to the growth in exports of services.
Exports of transport services were down a little in Q2 2022, however, the Bank of Estonia says.
Imports of services continued to be affected by the high reference base caused by a one-off transaction, and so imports of services were 15 percent less than a year earlier.
The current account was in deficit to a small extent in the second quarter, by 0.3 percent of GDP.
The surplus in the services account gave support to the current account, but the deficit on the goods account was larger than in previous quarters.
Weaker demand in foreign markets, the continuing pressure from inflation, and the ongoing uncertainty made businesses more pessimistic about the future.
Surveys about expectations show that companies which estimate that orders for the coming months have declined and that it is ever harder to pass higher prices for production inputs into product prices are in the majority.
This will make it harder for companies to earn profits and will threaten their competitiveness in foreign markets, the Bank of Estonia reports.
More information on Q2 2022 results are available from the central bank's website here.
Editor: Andrew Whyte
Source: Bank of Estonia, Mari Rell